Loading summary
Transcript5 lines
- [00:06]
A
Imagine selling a piece of your house to Wall Street. Sounds insane, right? Well, that's exactly what's happening with something called a home equity agreement, and millions of Americans are falling for it. Today, I'm breaking down the shady practices of these companies, the math they don't want you to see, and the smarter way to get cash if you really need it that doesn't involve giving away your future. At ads for home equity agreement companies have been popping up on my TikTok feed recently, and they look a little something like this.
- [00:32]
B
No one told me I could easily access cash just for being a homeowner. Here's how I got thousands of dollars to pay my child's tuition. It's called Splitero. And here's how it works. First, head to splitero.com and fill out a simple form. You'll get pre qualified in just a few minutes with absolutely zero impact to your credit score. Now, Splitero sends an offer based on your home's value. There's no monthly payment due and no interest added. It's just cash for you to use however you need. After your application is approved, Splitero handles the details. And you're typically funded within 30 days. It's fantastic because you still maintain ownership of your home and you're using your equity to access cash. Splitero is perfect for accessing cash for home renovations, family needs, or to put aside for a rainy day. Go to Splitero and see if it's right for you.
- [01:28]
A
Yikes. Look at this tagline. Access your home equity better. Your life. Just, hey, it's just cash. Don't worry. No payment, no entry. Basically, these are the latest trend in the it's my money and I want it now space. And they're pitching these home equity agreements as a better alternative to HELOCs, which is a home equity line of credit. That's like using your home equity like a credit card, but with a home equity agreement or an HEA instead of a line of credit. With payments, you get cash upfront today in exchange for for giving up a chunk of your home's future value when you sell. And the selling point is no monthly payments, no interest, won't affect your credit score. Use the cash to do whatever you want. Sounds great, right? Well, you could not be more wrong, bud. Let me break it down. An investor, AKA a big Wall street company, gives you a loan for, say, 15 years based on the worth of your home, betting that your home value will go up in those 15 years. A pretty good bet. At the end of the loan period, you pay them back. But instead of interest, you give them a percentage of the increase in your home's value plus the original loan amount. But here's why that's a terrible deal. Just look at the data. Over the last five years, homeowners have seen their houses increase in value on average 8 to 9% a year, according to Redfin. So with HEA's, a huge slice of that goes straight to these slimy companies with slick marketing. A lot of the people falling for these are desperate for cash now to make home improvements like a kitchen renovation or build a pool. But like that Splitero ad I just showed you, you can spend it on anything, including and apparently groceries. Let me make sure I got that straight.
- [03:00]
B
Splitero is perfect for accessing cash for.
- [03:02]
A
Home renovations, family needs, family needs, family needs with a picture of a grocery cart. If you need a loan to buy groceries, you have much, much bigger problems. And you should stop watching this video and instead read my book, Breaking free from broke ASAP. Link in description. But back to HEA's. The problem at hand here. Splitero is not the only player. There are tons of companies who offer these and they make it sound real tempting. Just list to their pitches. Here's one from Unison. We'll give you up to 15% of your home's value. No payments for 30 years. HomeTap Access your equity with no monthly debt point. We'll invest in your home alongside you. And then you've got unlock homepace and Equifi, which all have variations of the same promise. Cash today, no strings attached. Last time I fell for no strings attached was back in the year 2000 when I bought this compact disc. And I have no regrets, but with HEA's, there's just one giant string attached to the tune of a six figure payday for the company's coming for your home proceeds. So let's break it down. First up, the math does not add up. And don't worry, I will not make you do it yourself. Let's say you own a house with an appraise worth of $500,000. Well, Splatero, Hometap or whoever gives you 10% of the value of your home as a loan. So you get $50,000 cash up front. Now there can be fees involved with these agreements, so we'll deduct 5% so you actually get $47,500. Now your loan agreement is 15 years at 15% of your home's appreciated value. So at the end of 15 years, you pay them back the original amount of $50,000, plus 15 years of appreciation. So let's say in this example, your home value increased by 5% every year. At the end of 15 years, your home is now worth over a million dollars, which means you owe $155,919 in appreciation, plus $50,000, the original loan amount, which brings your grand total to $205,919. Did you see what just happened there? This is crazy. You're gonna pay back over three times as much as you borrowed. Effectively, you took out a loan with a 10% interest rate, which makes it worse than a HELOC. And that's if everything goes to plan. If you don't have the cash to pay back your loan at the end of your loan period, you could be forced to sell your house to pay it back. And if you your loan agreement period is up and you sell your house, you're immediately on the hook to pay back your loan, plus a percentage of the appreciation. Hope that gold farmhouse sink was worth it, Nancy. And that brings us to the next problem. HEA's don't hold up to logic. There's no such thing as a free lunch. There are free samples, though. But even then, you need a membership, and that'll set you back 60 bucks for the occasional pleasure of a free sample. And don't even think about putting on a fake mustache and trying to go back for a second one, okay? That's how you get kicked out of Costco warehouse number 0386. Ask me how I know. That is the sexiest thing I have ever seen. You've heard the saying about Vegas. The house always wins. And with home equity agreements, the company always wins. If your house appreciates, they're making bank. If your house doesn't appreciate, you still paid their fees and have to pay back the loan amount no matter what, which could mean losing your house. So who exactly is falling for these things? Well, before we get to that, let me tell you about something I'm falling for. Happily my pants. From Cozy Earth, a sponsor of today's video. I love these pants. And I know you're thinking, well, George, this is one man's opinion. Let me read you this review from Winnie G. Over here. My grandson loves these pants. He dressed them up for an orchestra performance. Very comfy, but looks dressy enough. Did she include a photo? Yes, she did. God bless you, Winnie. Looking good, my man. I assume that's a trumpet. Perhaps. Where my band nerds at? Let me know in the comments what you think that instrument is. And Shout out to Winnie G. Like how many grandmas are out there making accounts on clothing websites to leave reviews to shout out their grandson. That's a great grandma right there. So if you want to check out some more sweet reviews, check out the pants, check out all their great products, go to cozyearth.com george and use code George on top of their site wide sale giving you up to 40% off in savings. And these deals will not last. So start your holiday shopping and today I'll drop a link in the description as well. So what kind of people are companies like Splitero and Hometap hoping will buy into their promises? Well, that brings us to our final problem. They are preying on people who are in desperate situations. These quick cash loans appeal to people who are stuck, who feel like they have no options. Usually house rich, cash poor, and the promise of cash without having to pay anything for a long time feels like freedom right now, but it's actually a long term trap. They are robbing you of your future wealth, but you don't realize it in the present because you're too distracted by the emergency, the renovation, the tuition, the groceries. This is not financial help, it's financial handcuffs. And the companies offering these products are shadier than a pair of Temu Ray Bans. Now that's what I call shady real talk. This is how these companies operate. One of their favorite things to do is hire a shady home appraiser who devalues your home initially. Then when it's time for you to pay, they get the shady appraiser to hike up your value so you end up paying even more. Like I said, shady. And Reddit is full of people's tales of woe interacting with these companies. Here's two of them and I will summarize because as you know, with Reddit, they do be long winded. I entered a shared equity agreement with Hometap in 2021. It is not going well. Appraisal was 446,000 in 2021. Highest offer now 400,000. Hometap values it at 458,000. They want 33% if I sell above 27% if below. My loan was 90,000 dol on 400,000. That's 108,000. But they're asking 151,000. So 38% instead of 27%. They were helpful when I signed, but now they're making $20,000 profit on a $90,000 investment. They hold your ability to sell over you. You do get screwed. Yikes. That is tough and for our next story, our loan was $37,500 in 2021. But with a roof that needed immediate repair, we were extremely limited. Money. Quick but predatory appraisals in quotes. I'd wager we'd get nowhere close to Zillow. This was a deal with the devil. Super shady. At least we have a new roof and I don't have to crawl up there every winter with tarps in the rain. I justify owing them $65,000 by assuming a trip to the ER after falling off the roof would cost more. Okay, those stories are crazy. And I crunched the numbers for you to actually show you the insane interest these people are paying. So if you actually do the math on this, the first story paid almost 19% with an annual interest, and the second story, almost 15%. Now, imagine explaining to your kids that you gave away $150,000 of the family's future just to get 90,000 today. That is shortsighted and heartbreaking. So if you're considering an hea, here's what to do instead. Step number one, don't just please do not. Number two, identify the actual thing you're trying to solve. Are you trying to pay for college? Renovate the master bath? Buy a new roof because it's leakier than a newborn baby? Get to the heart of the matter. Is it vanity or a true crunch? If it's a true crunch and need cash, get it the right way. Cut your expenses down to the bone. Increase your income with a side hustle, overtime, freelance work, whatever you can do. And if it's truly an emergency and you have no other option, you need to sell anything that could help you come up with the cash quick. And if you run out of options, you might need to look at selling the house as a last resort. I know unpopular opinion, but it's better to downsize and own your equity than to just give it away. And if you know me, you know I'm not a fan of debt of any kind. Of. And sure, an HEA might not sound like traditional debt, but it is selling off your future wealth, which is the whole point of living debt free and investing wisely so you can build wealth, not give it away. So stay far, far away from predatory traps like home equity agreements. And build margin in your life the right way. Create a budget, build an emergency fund, and get out of debt asap if you have it. So if you're wanting to learn more about buying a house the right way, check out this video. Coming up next on how much house you can actually afford based on income. Click to watch it or use the link in the description. And don't forget to like, subscribe and share this episode with a friend who's headed for the graveyard of Reddit regrets. Thanks for watching. We'll see you next time.